Thousands of businesses that rely on agency workers won a crucial legal battle this morning when the Court of Appeal ruled that they do not have the same rights as staff employed directly by the company.

The ruling was made in the case of Merana James, who claimed she was entitled to the same rights as other workers at the London Borough of Greenwich because she had worked there for several years and was treated, she claimed, like any other employee.

She sued the council for unfair dismissal after she was replaced after three years working as a housing support officer.

The council claimed that as an agency worker Mrs James had no contract with the London Borough of Greenwich and they had no duty to offer sick pay. Any arrangements, the council said, would be between Mrs James and the agency that employed her.

The Court of Appeal agreed with the council and said Mrs James could not assume she had a direct contract with the London Borough of Greenwich regardless of her length of service.

Monica Kurnatowksa, a partner at Baker & McKenzie, said the decision has "curbed the unrealistic expectations of some agency workers, confirming that unless the circumstances are very unusual, an agency worker, even one who has worked for the client for many years, is not an employee".

Lawyers were eagerly awaiting the decision as employment tribunals have given inconsistent rulings on the issue for several years.

Rachel Dineley, an employment partner at Beachcroft, said it was a “definite win” for businesses and that they would welcome clarification of the law.

The issue has troubled businesses for some time because although agency workers are entitled to certain rights from the agency that employs them, these are generally much weaker than if they were directly employed by the company where they work.

This has led to a raft of litigation on the issue. Last year a tribunal put all similar cases on hold pending the outcome of this morning’s decision.

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